U.S. prosecutors have delivered a severe blow to online gambling
companies that are flouting a U.S. ban on Internet gambling by
arresting two founders of payment processor NETeller.

Britain's NETeller closed its U.S. Internet gambling services on
Thursday, wiping out over 65 percent of its business, after two of its
founders were arrested there this week.

NETeller is the latest target of a U.S. crackdown on online gaming,
which began with the arrest of BETonSPORTS Chief Executive David
Carruthers in Texas last July.

NETeller's two founders, Canadians Stephen Lawrence, 46, and John
Lefebvre, 55, have been charged with handling billions of dollars in
illegal gambling proceeds. Both face a maximum sentence of 20 years in
prison.

Online gaming giants such as PartyGaming and Sportingbet pulled out
ahead of the U.S. ban last November, but privately owned rivals such
as Pokerstars, Full Tilt Poker and Bodog carried on taking wagers
illegally, often using NETeller to process their payments.

"This is the first piece of news that will really hurt the likes of
Pokerstars and Full Tilt," said analyst Tejinder Randhawa at Evolution
Securities.

"If you look at the gambling chat rooms, you'll see NETeller was one
of the main payment methods," he added.

According to gambling portal Gambling911.com, Full Tilt Poker depended
on NETeller for 75 percent of transactions, and the world's biggest
site, Pokerstars, used NETeller for around 60 percent of wagers.

BUSINESS MAY SHIFT

Canada's ESI Entertainment said on Wednesday its Citadel payment
processing unit was also pulling out of the United States.

Online gambling companies use roughly a dozen payment processors that
are smaller than NETeller.

Pokerstars declined to comment, and executives at Full Tilt could not
immediately be reached.

Online gaming companies have been doing business for many years in the
United States, where the law was discouraging but ambiguous until a
full ban in November. They were usually listed in London and located
in offshore jurisdictions such as Antigua and Costa Rica.

Money transfer companies such as NETeller, based in the Isle of Man,
allow gambling companies to transfer money collected from
U.S. gamblers to bank accounts outside the United States.

As U.S. gamblers abandon Pokerstars and other privately owned sites,
the remaining Europeans and Asians on those sites may start drifting
back to listed rivals PartyGaming and Sportingbet, analysts said.

"PartyGaming previously lost a lot of higher yielding
non-U.S. players, who saw higher liquidity on the higher limit tables
and tournaments on Pokerstars," said analyst Andrew Lee at Dresdner
Kleinwort.

"PokerStars may now start to lose some of these players, given the
payment processing restrictions and struggle to stimulate growth," he
added. "This could be good for PartyGaming by shifting
non-U.S. players back."